VIENNA/UNITED NATIONS (Reuters) - The U.N.
nuclear watchdog planned a major report on Iran that might have revealed
more of its suspected atomic bomb research, but held off as Tehran's
relations with the outside world thawed, sources familiar with the
matter said.

Such a report - to have been prepared last year - would almost
certainly have angered Iran and complicated efforts to settle a
decade-old dispute over its atomic aspirations, moves which
accelerated after pragmatic President Hassan Rouhani took office in
August.

According to the sources, the International Atomic Energy Agency
(IAEA) has apparently dropped the idea of a new report, at least for
the time being.

There was no immediate comment from the IAEA. The sources said there
was no way of knowing what information collected by the agency since
it issued a landmark report on Iran in 2011 might have been
incorporated in the new document, although one said it could have
added to worries about Tehran's activities.

As relations rapidly improved, Iran struck an interim nuclear deal
with six world powers in November which Israel denounced as an
"historic mistake" as it did not require Tehran to dismantle its
uranium enrichment sites.

One source said probably only Israel, which is believed to be the
Middle East's sole nuclear-armed state, would criticize the IAEA for
not issuing a new report in the present circumstances. Iran and the
world powers hope to reach a final settlement by July, when the
interim accord expires, although they acknowledge this will be an
uphill task.

A decision not to go ahead with the new document may raise questions
about information that the United Nations agency has gathered in the
last two years on what it calls the "possible military dimensions"
(PMD) to Iran's nuclear program. Tehran says the program is peaceful
and denies Western allegations that it is seeking to develop the
capability to make bombs.

The sources, who declined to be identified due to the sensitivity of
the issue, suggested the more recent material concerned extra detail
about alleged research and experiments that were covered in the
November 2011 report. A new report would probably have included
"updated information on PMD" which could have "reinforced the
concern" about Iran, one said.

The IAEA's dossier in November 2011 contained a trove of
intelligence indicating past activity in Iran which could be used
for developing nuclear weapons, some of which it said might still be
continuing. Iran rejected the allegations.

It helped Western powers to step up the sanctions pressure on Iran,
including a European Union oil embargo imposed in 2012, showing the
potential significance of a decision on whether to publish the
IAEA's findings.

Since then the agency has said it obtained more information that
backs up its analysis in the 2011 document, which detailed
allegations ranging from explosives testing to research on what
experts describe as an atomic bomb trigger.

Other issues it wants Iran to address are alleged detonator
development, computer modeling to calculate nuclear explosive
yields, and preparatory experimentation that could be useful for any
atomic test.

It says the "overall credible" information in the 2011 dossier -
contained in an annex to a wider quarterly report - came from member
states, believed to include Western powers and Israel, as well as
its own efforts.

One source said it was believed that the Vienna-based IAEA had
received more information on suspicions of nuclear yield
calculations, but it was not known to what extent this would have
made it into a new report on Iran.

IRAN SAYS CLAIMS BASELESS

"The agency has obtained more information since November 2011 that
has further corroborated the analysis contained in that annex," it
said on February 20 in a regular quarterly report on Iran's nuclear
program. It has been investigating accusations for several years
that Iran may have coordinated efforts to process uranium, test
explosives and revamp a missile cone in a way suitable for a nuclear
warhead. Iran says such claims are baseless and forged.

The sources said that last year's planned report would probably have
amounted to a wider review of the Iranian nuclear file, including
PMD and other outstanding issues.

They said the idea was raised internally when the IAEA's
long-running efforts to get Iran to cooperate with its investigation
appeared completely deadlock in mid-2013.

But with a new leadership in Tehran trying to end its international
isolation, Iran and the IAEA agreed last November a step-by-step
transparency pact to help allay concerns about the atomic
activities. This was sealed shortly before the breakthrough deal
between Tehran and the six powers - the United States, Russia,
France, Germany, Britain and China.

In follow-up talks on Feb 8-9, Iran agreed for the first time to
address one of many PMD issues in the 2011 report, regarding
so-called exploding bridge wire detonators, which can have both
civilian and military applications.

"While other experiments with possible military dimensions must be
addressed and soon, progress on the bridge wire detonators issue
would be an important first step toward resolving these issues,"
said the Arms Control Association, a U.S. research and advocacy
group, in a February 26 analysis.

But it remains uncertain when and how the IAEA will be able to look
into more sensitive areas, including long-sought access to the
Parchin military base southeast of Tehran, where it suspects
explosives tests that could be used for nuclear bomb development
took place a decade ago, a charge Tehran denies.

The IAEA inquiry is separate from, but still closely linked to, the
wider diplomacy to end the years of standoff over the nuclear
program that has raised fears of a Middle East war.

THE IAEA'S "JOB"

The interim agreement focused mainly on preventing Tehran obtaining
nuclear fissile material to assemble a future bomb, rather than on
whether Iran sought atom weapons technology in the past, which the
IAEA is investigating.

The 2011 report portrayed a concerted weapons program that was
halted in 2003 - when Iran came under increased Western pressure -
but it also indicated that some activities may later have resumed.

Western diplomats and nuclear experts say the IAEA needs to complete
its inquiry to establish what happened and to be able to provide
assurances that any "weaponisation" work - expertise to turn fissile
material into a functioning bomb - has ceased.

They say clarifying this is also important in being able to quantify
the time Iran would need to dash for a nuclear weapon, if it ever
decided to do so.

But it is unclear to what extent it will form part of any final
settlement between Iran and the powers - which unlike the IAEA can
lift crippling sanctions on the major oil producer and therefore
have more leverage in dealing with Tehran.

"Some analysts have argued incorrectly that issues like Parchin and
alleged military dimensions do not matter. According to their
reasoning, these issues are in the past and should be overlooked,"
the Institute for Science and International Security, a U.S.
think-tank, said this week.

However, Peter Jenkins, a former British ambassador to the IAEA,
said Iran now appeared to be in full compliance with its obligations
under the nuclear Non-Proliferation Treaty, and had "started to
resolve residual ... questions about past nuclear-related activities
and to shed light on future intentions".

A senior U.S. official said that clearing up the issue of possible
military dimensions to Iran's nuclear program was "in the first
instance" the IAEA's task.

"The more that Iran can do to meet their obligations with the IAEA,
the better for the nuclear negotiating process around a
comprehensive agreement," the U.S. official said on February 17.
But, "We don't want to do the job that belongs to the IAEA."